For seven straight quarters, Dolby Laboratories' (NYSE:DLB) quarterly earnings releases have been music to investors' ears, beating Street estimates by wide margins. Can the sound system specialist make it two straight years of earnings beats when it reports its fiscal Q3 numbers on Wednesday?

What analysts say:

  • Buy, sell, or waffle? A dozen analysts listen in on Dolby's conference calls. Twice as many rate it a buy as do a hold.
  • Revenue. On average, analysts estimate that Q3 sales grew 13% to $106.1 million.
  • Earnings. Profits are predicted to do even better -- up 18% to $0.20 per share.

What management says:
The big news this quarter was that someone has decided to cash in on the stock's success. In May, Dolby announced that "an affiliate of [company founder] Ray Dolby" is listing 7 million shares for sale at $32 a pop. If demand is (was?) as much as expected, underwriters Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS), William Blair, and Canaccord Adams may have bought another million shares for themselves. And if they did, they may have profited handsomely. Prior to the recent sell-off, shares had returned to just shy of $36 at the beginning of this month. Then again, had this sale taken place right after last quarter's earnings release, the bankers might have done even better, as the shares maxed out north of $37.

In that announcement, CEO Bill Jasper praised his firm's "great progress extending Dolby technologies into newer markets, such as digital television," and backed up the statement by raising full-year guidance to $435 million to $450 million in revenue, and $0.95 to $1.00 in per-share earnings.

What management does:
Dolby's margins could make traditionally high-margin industry leaders like Intel (NASDAQ:INTC) and Merck (NASDAQ:MRK) blush -- and even have Microsoft (NASDAQ:MSFT) looking over its shoulder. The firm consistently grosses more than 80% on its sales and keeps nearly half of that in operating profits. Moreover, gross, operating, and net margins are expanding.

Margins

12/05

4/06

7/06

9/06

12/06

3/07

Gross

77.6%

81.0%

80.5%

80.9%

82.3%

82.3%

Operating

31.9%

36.6%

36.2%

37.1%

39.4%

40.3%

Net

17.7%

21.7%

22.0%

22.9%

25.2%

26.4%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

The Fool says:
In the summer semiannual review of all stock recommendations on his side of the Motley Fool Stock Advisor portfolio, Fool co-founder Tom Gardner described Dolby thusly: "Like surfers searching for that perfect wave, we are always trying to find a company that sits on a momentous wave -- a wave that will propel it forward for years, if not decades. We think Dolby has found such a wave ... Today, more than ever before, consumers are enjoying digital media across a multitude of platforms, and Dolby is there to deliver the superior sound quality customers demand."

But with the stock already up 57% since he first recommended it less than a year ago, is it too late for an investor to shout "Surf's up!" and join in the fun? Find out for yourself. Tom answers the question: "Is Dolby a buy today, and if so, at what price?" in the May review issue of Stock Advisor. Free copies available when you sign up for an -- also free -- 30-day trial of the service.

Can't get enough of Dolby? Surround yourself with the sound of earnings news:

Intel and Microsoft are Inside Value recommendations.

Fool contributor Rich Smith does not own shares of any company named above.